by Jacob H. Hupart, Megan N. Gates, Douglas P. Baumstein, Pete S. Michaels, Courtney O. Taylor, William F. Weld, Thomas R. Burton III, and Sahir Surmeli
On May 25, 2022, the SEC issued two new sets of proposed rules: “Investment Company Names” (“Names Rule”),[1] and “Environmental, Social, and Governance Disclosures for Investment Advisers and Investment Companies” (“ESG Disclosure Rule”).[2] Taken together, these two proposed rules are intended to combat “greenwashing.” The practice of “greenwashing” refers to when firms or companies claim they are abiding by ESG principles, especially environmental, when in fact they do not so comply.[3] Here, the newly proposed rules provide that only funds with an ESG purpose would be permitted to label themselves accordingly, and a new set of mandatory disclosures for ESG-focused funds would enable outside parties to confirm whether such a purportedly ESG-focused fund is in compliance with its stated investment purpose. As the SEC stated in an accompanying press release, these “proposed amendments to rules and reporting forms [would] promote consistent, comparable, and reliable information for investors concerning funds’ and advisers’ incorporation of environmental, social, and governance (ESG) factors.”[4]